Secure Fair Pricing at Your Upcoming Health Plan Renewal

AUGUST 1, 2023

One of several factors insurers consider when calculating your health plan renewal is the medical trend, or the projected year-over-year cost increase to treat patients, assuming benefits remain the same. A recent survey of health plan actuaries projected a 7% medical trend for 2024, compared to 6% last year.¹ The report identified several factors driving up the costs of care, including:

Higher Rate Increases — Hospitals and healthcare providers are expected to seek higher rate increases from insurance companies to offset costs related to persistent inflation, a slower-than-expected workforce recovery, and continued provider consolidation.

Skyrocketing Pharmacy Costs — Driven by the increase in high-cost medications approved by the Food and Drug Administration (FDA), the median annual price for new drugs jumped from $180,000 in 2021 to $222,000 in 2022. The number of approvals for high-cost medications increased to 47% from 2020 to 2021, compared to 9% over five years between 2008 and 2013.²

The medical trend used by carriers to calculate renewals is often 30% higher on average than the actual trend. Using an inflated trend is just one strategy insurance companies employ to embed additional streams of revenue in your renewal. Understanding what goes into your renewal calculations — and where those revenue streams are hidden — could help you save thousands of dollars on health plan premiums.

What Else Is Embedded in Your Renewal?

Insurance companies expect brokers to negotiate a discounted rate for their clients. To make up for the margin lost to negotiations, renewal premiums are often padded in several areas:

Claims-Based Fees — Premium calculations often include additional sources of revenue embedded in the claims expense line. Items like shared savings, capitation and prescription rebates don’t appear on the renewal worksheet but make up 7% of the premium on average.

Pooling Fees — Under a fully insured plan, employers pay a pooling fee that insurance companies use to cover high-cost claimants for any fully insured groups on their books. To account for lost margin in other areas of negotiation, insurance companies often set pooling charges higher than actuarial projections would suggest.

Large Claims — Underwriters also often set the expected number of large claims higher than what would be typical for an average health plan, skewing the premium calculation.

PBM Integration — Pharmacy spread pricing and rebate conditions, which are baked into pharmacy benefit manager (PBM) contracts, can also contribute additional revenue for the insurance company (and the PBM).

A renewal negotiation that fails to categorize all claims-based revenue, including rebates, as administrative expense (i.e., insurer profit) is a flawed process. Understanding the various components that impact the cost of your renewal can give your organization a better starting point to negotiate pricing with the insurance company.

A Comprehensive, In-Depth Approach to Renewals

While most brokers will negotiate discounted rates starting with the inflated renewal, USI Insurance Services relies on our in-depth understanding of the various strategies insurance companies use to generate profits. This helps us identify which cost drivers may be included in a renewal and start the negotiation from a more reasonable point.

Using claims data and underwriting principles, we can model what a fair renewal should look like for a fully insured plan, and compare our assessment to the renewal proposed by the insurer. This process provides transparency into the renewal calculation and allows us to begin negotiations with a lower proposed premium.

For fully insured employers, this process often leads to an additional 3% to 6% reduction in renewal premiums. When combined with additional negotiated rate decreases of 5% to 7%, our analysis can help reduce final renewals by 8% to 13% from the amount initially proposed by the insurance company.